Personal Abundance

Welcome back to this lecture. Thank you very much. In this lecture, we’re going to apply the framework at the personal level. We’ll use the equations that we discussed in the previous lecture and take that framework, that set of equations, and apply them to the real world to see what they can tell us about abundance.

The Ultimate Resource

Before diving in, let’s revisit Professor Julian Simon. He wrote The Ultimate Resource, arguing that the ultimate resource is people. Simon’s notable statement:

“The ultimate resource is people—especially skilled, spirited, and hopeful young people endowed with liberty—who will exert their wills and imaginations for their own benefits. And so, inevitably, they will benefit the rest of us as well.”

Key ideas:

Young people, full of energy and ideas, can produce great benefits if they have liberty.
George Gilder and Thomas Sowell echo this sentiment, emphasizing that the growth of knowledge differentiates our age from the Stone Age.
Materials like sand and aluminum have always existed; what we lack without knowledge is the ability to transform them into valuable goods, such as an iPhone.

Economics: A Knowledge-Driven Field

Economics can be defined as:

The study of how human beings create value for one another by discovering and sharing knowledge.

An economy functions when people agree to trade knowledge and services.
Value is not inherent in materials; rather, it arises from their arrangement and our knowledge of how to use them.

Historical Perspective

Between 1800 and 2022:

Population grew from 1 billion to 8 billion.
Life expectancy increased from 30 years to over 70 years.
Income per day increased from $2 to $30.

Despite Malthusian predictions of resource scarcity, life expectancy and living standards have improved dramatically.

The Importance of Trade-Offs

Economists often refer to “yabut” (“Yes, but”), emphasizing trade-offs. Rational decision-making involves weighing both costs and benefits.

Understanding Resources

Resources are not merely atoms; they become valuable when knowledge is applied.
With knowledge, resources can effectively become infinite.
The price system acts as an information system, guiding behavior based on supply and demand signals.

Time Prices: A Better Measure

Time price = Money price / Hourly income

This metric provides a more accurate measure of affordability over time.
Websites like MeasuringWorth.com provide reliable historical wage data to help calculate time prices.

Example Calculations

Hershey Bars:

1900: $0.05 per bar, wages $0.09/hour, time price: 33 minutes.
2022: $1.32 per bar, wages $15.72/hour, time price: 5 minutes.
Result: A 562% increase in Hershey bar abundance.

Bicycles:

1910: $11.95 per bike, wages $0.11/hour, time price: 108 hours.
2022: $98 per bike, wages $15.72/hour, time price: 6 hours.
Result: A 1,743% increase in bicycle abundance.

Applying the Framework

Using historical price and wage data, we can calculate abundance multipliers for various goods, showing how many more items one can afford today compared to the past.

Example: Refrigerators

1956: $469, wages $2.16/hour, time price: 217 hours.
2022: $549, wages $34.76/hour, time price: 15 hours.
Result: Nearly 14 refrigerators today compared to one in 1956.

Key Economic Insights

Innovation and knowledge increase abundance, making goods more accessible.
Price increases must be compared against wage increases to assess true affordability.

The Rule of 70

A quick method to estimate doubling time:

70 / Growth Rate (%) = Years to Double

For example, with a 3% growth rate, doubling time is approximately 23 years.

Comparing Over Time, Not Across People

Jordan Peterson’s advice:

“Compare yourself to who you were yesterday, not to who someone else is today.”

Looking at life across generations, rather than comparing oneself to peers, fosters gratitude and perspective.

Conclusion

In this lecture, we applied the time price framework to personal abundance, demonstrating:

Historical data confirms increasing prosperity.
Time prices offer a powerful tool for understanding economic progress.
Abundance results from the accumulation and sharing of knowledge.

Thank you for attending this lecture.